eBay changes fees

January 30, 2008 7:12:21 AM PST

SAN FRANCISCO (AP) - January 30, 2008 --

EBay Inc. is rejiggering its fees - raising some, trimming others - to meet rising competition and maintain its share of the online auction market it helped start a decade ago.But those who keep tabs on the Web site, including its top sellers, say the changes are a step in the wrong direction.

"It's too little too late," said Steve Grossberg, one of eBay's top 100 sellers and the founder and president of the Internet Merchants Association.

Grossberg, a Florida-based vendor of video games, spoke by phone from a conference of 200 of North America's top eBay sellers in Washington, D.C., where incoming CEO John Donahoe announced the fee changes Tuesday. EBay makes 80 percent of its revenue from the top 20 percent of its sellers.

"I think you are going to see a listing decrease, you are going to see some sellers leave the site or pull back quite a bit and think of other ways to make revenue, and it's going to backfire," Grossberg said.

Listings on eBay's various sites in the fourth quarter rose 4 percent, reversing two straight quarters of declines, the company reported last week. The number of people actively using the site has stagnated, rising just 2 percent from a year ago, while revenues have risen modestly.

The price changes, which take effect Feb. 20, are complex. It will cost 25 percent less to list an item for auction and up to 50 percent less to offer something for a fixed price. EBay's commission on items sold for fixed prices over $100 will also decline.

Its commissions on auction items selling for more than $1000 will remain at 1.5 percent, while its commission on cheaper items will rise as much as 67 percent.

Under the old rules, for example, a purse auctioned for $25 would have cost the seller $1.91, including 60 cents for listing the item plus eBay's commission of $1.31. Under the new structure, the seller would pay $2.74, including 55 cents to list the item plus a higher commission of $2.19.

"EBay does sincerely want to compete. They are reacting to the competitive threat of Amazon," said Ina Steiner, editor of AuctionBytes.com, a trade publication for online sellers.

Company spokesman Usher Lieberman said the company's internal pricing experiments and number-crunching show listings overall will rise in response to the changes.

"We've heard from our sellers for a long time that they've wanted us to reduce their upfront cost and risks, and we've done that," Lieberman said. Lieberman predicted the changes will result in savings for more than 60 percent of sellers.

EBay most wants to encourage growth in fixed-price sales, the area where it sees the most potential for growth.

One of its main rivals in fixed-price sales, Amazon.com Inc., charges no fee at all to list an item, though it charges a commission as high as 15 percent.

Sellers told The Associated Press that Amazon is more straightforward, takes less time and that they make more money using it, partly because Amazon pays for payment processing. Randy Smythe, a former eBay seller in Southern California, said eBay's sellers take more risks than Amazon's because they have to pay before an item sells.

Smythe sold music and movies on eBay for nine years, bringing in up to $4.6 million a year. He stopped in 2006 because he saw increased competition from those who were gaming eBay's fee structure, charging less for CDs upfront but more on shipping. He found he was keeping just 2 percent of his gross revenue, and he now blogs about the industry instead.

"What's going to happen is it's still going to be too expensive to sell on eBay and make good money," Smythe said.

Donahoe said eBay is at a crossroads. He told the sellers the new fee structure will be driven by their success.

"To maintain our leadership position in e-commerce, we can no longer afford to make incremental changes to meet our customers' needs," Donahoe said. "We need to redo our play book and we need to redo it fast. We need to take bold actions to meet the expectations of buyers and sellers around the world."

Donahoe said a majority of sellers will see their prices fall.

But sellers said the changes will increase their costs.

"I don't see any real incentive for the average seller to list more with this new fee structure. I think their 'bread and butter' core auction listings will continue to diminish as a result," said Bill Hamilton, a Georgia-based top seller who specializes in collectible gemstones.

The new fees affect only sellers in the United States. More changes are coming in Britain and Germany.

The changes come as longtime Chief Executive Meg Whitman announced she would retire at the end of March. Donahoe, president of eBay Marketplaces, which encompasses its shopping sites and classifieds, has said he will aggressively change eBay's product, customer approach and business model.

Martin Pyykkonen, an analyst with Global Crown Capital, said eBay's rising fees have in the past caused sellers to look elsewhere on the Internet for places to practice the online skills they perfected at eBay, whether it's their own Web sites, Amazon, or other shopping sites.

"The more savvy sellers look at a multitude of options. It's not like Amazon is taking market share from eBay in a big chunk, it's more of a gradual shift. This commission going up will be a telling point over the next months to see what kind of reactions it gets," Pyykkonen said.